Rants and Raves on Espresso

Just when you think the profession of the coffee “middleman” was on its way out in this era of the Internet, in come a number of entrepreneurs trying to reintroduce them. What we’re talking about are consumer retailers that intermediate the sale of roasted coffee — with examples that include Citizen Bean, GoCoffeeGo (see Man Seeking Coffee’s recent review), and ROASTe.

These e-retailers provide online storefronts for consumers to review, order, and purchase roasted coffees from a variety of specialty coffee roasters. Virtually all of the participating roasters already have their own online storefronts with support for direct ordering. So the value of these e-retailers is supposedly in the discovery of new roasters and the convenience of buying your roasted coffee from one Web site. Or so the PR machines behind them have stated in our stuffed e-mail inboxes over the past few months.

Business model challenges

In some ways, this reflects the ambitions of entrepreneurs who wish to shoehorn the specialty wine merchant business model on coffee’s ever-popular wine analogy. Other elements seem like attempts at coffee’s wine-of-the-month club. In either case, a major flaw in this model is that coffee, unlike wine, goes stale immediately after roasting. To address this, these e-retailers have established on-demand roasting relationships with their roasters.

Another major challenge with this business model concerns pricing. Adding a middleman always costs more money than a system without one, as they have to make expenses and payroll on top of all the other costs in the supply chain. It’s for this reason that coffee middlemen have been extremely unpopular in recent years. They’ve been demonized by the Fair Trade movement as unnecessary leeches, siphoning money from the coffee trade supply chain that should otherwise be going to coffee farmers.

In fact, the entire financial premise behind Fair Trade and Direct Trade coffee is to get rid of the middlemen. So who is paying for these e-retailers? Right now, it seems to be an arrangement akin to that of travel agents before the age of the Internet: the seller picks up the additional costs as a marketing and distribution expense, and no additional costs are passed on to the consumer. But how long will this last once the consumer novelty wears off?

It’s indirect trade: buying coffee through these roasted coffee brokers effectively cuts into the coffee roaster’s capacity to pay top dollar to their coffee farmers.

Dinosaurs before they’re hatched?

The travel agent analogy to these e-retailers is fitting, as there’s little you can do with them that you cannot already do directly, and more cheaply (total supply chain cost-wise), over the Internet. Like travel agents in their heyday, the value of a middleman comes when there is a lack of consumer information and/or a lack of direct public access to the suppliers. The Internet has rendered both as non-issues when buying roasted coffee. And we all know what happened to travel agents. So unless the individual roasters themselves completely screw up their business at sales and distribution, a middleman will have a very limited opportunity to improve upon these relationships.

For a comparison, over the years I have purchased green coffee beans (for home roasting) from distributors such as Sweet Maria’s and The Coffee Project. Why? For one, I simply cannot find supplies down the street. It also helps that a Web site like Sweet Maria’s provides a lot of flavor profile information and roasting recommendations. But if individual farms I knew and trusted started selling directly over the Web, that would change things.

Does this mean that these e-tailers don’t provide a valuable service customers want? Absolutely not. A number of them already have vocal, loyal customers. There may turn out to be a sustainable long-term market for one or two of these middlemen for a limited set of customers. But given the economic and disintermediation forces of the Internet, we foresee a pretty ugly commercial bloodbath on the horizon for a number of them. Travel agents did give way to travel-aggregating Web sites, but then we already had an established need for travel agents well before the Web came along.

I’ve actually done that once… but in Hawaii, of all places. Let’s just say that they — after a back-and-forth on various phone calls up-and-down their management chain — begrudgingly sold the green beans to me “as a favor”. I was told to keep the deal under wraps, and they hardly gave me much of a discount off the roasted coffee price.

I’m not entirely surprised, since in that exchange the roaster was nothing more than a middleman themselves.

I’d say Amazon provides a bit of a counterargument to this post’s premise. People could just buy books directly from publishers’ sites, but they head to Amazon instead because products are displayed in user-friendly categories, visitors can read product reviews, and apps like “Others who bought this also bought…” allow for discovery.

A good counterpoint, no question, and one that certainly must have come up with investors when reviewing their business plans. Even if printed book and roasted coffee inventories are very different things to manage and sell.

One difference I see is that the offline retail bookstore was an established business long before the Internet came around. In contrast, the aggregating retailer of roasted coffees is a wholly new concept — whether offline or online. (Given the time-sensitive need to conveniently support just-in-time roasting, it probably could only realistically exist in an online world.)

Another major difference concerns consumer brand loyalties towards roasters versus publishers. If To Kill A Mockingbird were to change publishers, few would bat an eye. But at least here in SF, for example, you have “blind” loyalists who believe that it’s Blue Bottle or nothing. The market for coffee explorers seems all that much smaller.

Citizen Bean for instance is a gift subscription, I’m most cases offer roasters thatcare not available to any other venue, include food pairings with each month”s coffees, do not charge a higher price and ship priority mail to their subscribers to ensure that they get it in days after the roasting date.

I’m not sure I get your point(s), Señor Anonymous. What exactly are they, really? The post wasn’t about the consumer appreciation for these services — just their economic viability as middleman businesses. Whether you try these services once or not does not alter their business models nor their economic viability. Although we did try one of these services — and ROASTe disappointingly screwed up our order by sending us pre-ground instead of the whole bean coffee we ordered — that information is irrelevant here.

As for Citizen Bean, yes — they’re the “wine-of-the-month club” analogy that I mentioned. But it doesn’t sound like you even read the post above. Yes, they don’t charge a higher price to consumers. But as we mentioned above, they must cover costs and make payroll — so they must increase the costs to the coffee roasters. (Hence the travel agent analogy.) As far as priority shipping is concerned, we noted that they have on-demand relationships with their roasters.

So I’m not sure what you’re stating here that hasn’t already been said. Other than mentioning “food pairings with each month’s coffees.” We’ve long thought of coffee pairing as one of the most ridiculous manifestations of the shoehorned wine analogy placed on coffee. As we said back in 2006, “Coffee pairing integrated into a meal plan makes about as much sense as pairing cigars with each course.” Learning just now that Citizen Bean offers food pairings with their coffee actually makes us suspicious of the quality of their offerings.

I might suggest turning your suspision into educated jounalist – read websites, use the service and interview other users before you get carried away . They don”t distribute flavored coffee but do send items to help educate consumers the nuances in coffee he’d ways they can identify them.

If you were expecting a formula city journalism puff piece — offering free advertising to the business du jour with quotes from Joe Average Web shopper — you missed the entire point of the post.

Here’s our journalistic point you should minimally come away with: if you as a consumer support Fair Trade or Direct Trade coffee on principle, then buying coffee through these roasted coffee brokers works directly against your cause.

By adding additional middleman costs to the supply chain, you are effectively cutting into the coffee roaster’s capacity to pay top dollar to their coffee farmers.